Constant Returns to Scale or Not?


True or False?

Reference: From Practice exam 1. See Page 68 (of Jones Macro Econ Crisis Ed).


~Note that you might want to be prepared to show Increasing/Decreasing/Constant returns to scale via the TWO DIFFERENT ways noted on page 68.

False.   There are two ways to solve this.

1. Given a Cobb-Douglas Production Function,

which takes the form where )


Apply this rule to the problem above, with =(1/3)  &  =(1/2),  +<1

decreasing returns to scale.



2. Alternatively (and, grade-wise, additionally), know the following definition of Constant Returns to Scale


“With a Constant Returns to Scale production function

That is;  


Applying this rule to this problem,

 

        

         

         



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